Differentiate between provision and reserves
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Posted by Subhash Chand 5 years, 1 month ago
- 2 answers
Yogita Ingle 5 years, 1 month ago
| Reserve | Provision |
| Definition | |
| The portion of profit kept aside for unforeseen obligations of a business | A portion of money from the business set aside for meeting known liabilities or expenses |
| Method of Creation | |
| Created by debiting Profit and Loss appropriation account | Created by debiting Profit and Loss Account |
| Purpose | |
| It provides capital for running the business and safeguards against expenses from unforeseen contingencies | It secures business from expenses arising from known liabilities |
| Allocation | |
| Presence of profit is required for allocation of reserve. | Presence of profit not necessary for allocation |
| Dividend Payment | |
| Paid from reserves | Cannot be paid |
| Impact on Profit | |
| Reduces net profit of the organisation | Reduces profits for dividend distribution |
| Appears in | |
| Always shown on the liability side | Appears as a deduction from the concerned asset, in case of an asset, in case of liabilities, it is shown in the liabilities side |
| Utilisation | |
| Can be used for any given purpose | Needs to be used for the specific purpose it is allocated for |
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Subhash Chand 4 years, 8 months ago
1Thank You